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Three years after DeMo, you can still buy property by paying 30% cash in resale market

Primary sales market in Tier 1 cities offers limited scope for 'black' money transactions; Tier 2 and 3 cities present a different picture

Representative image
Representative image

Even three years after demonetisation, up to 30 percent of the total transaction value of a property in the resale market across India can still be paid in cash. The primary sales market in Tier 1 cities offers the least scope for unaccounted wealth in property deals, says a report.

The primary sales market in Tier 1 cities offers limited scope for black money because of the smaller gap between the state-notified circle rates and the market value quoted by developer. In fact, in some markets in NCR, the circle rates are higher than the market value of properties.

Circle rates, guidance value or ready reckoner rates are the minimum values set by a state government below which a property cannot be registered.

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At MG Road in Gurugram, the average circle rate is approximately Rs 11,205 per sq. ft. while the average market value is less at nearly Rs 11,000 per sq. ft. Likewise, in DLF City Phase 4, the average circle rates and the market values are almost at par which are approximately Rs 10,830 per sq ft and Rs 10,800 per sq ft respectively.

Primary sales in Tier 1 cities are almost cashless because of the reduced gap between market values and circle rates in Tier 1 cities have significantly reduced the scope for cash components in primary housing sales.

For instance, the average ready reckoner rate for housing in Mumbai's Lower Parel is approximately Rs 32,604 per sq ft while the average market value is Rs 34,750 per sq ft. In Worli, another high-profile area in the financial capital, the average reckoner rate is Rs 35,320 per sq ft while the average market value of is Rs 38,520 per sq ft. This narrow gap offers little scope cash components.

“Demonetisation in November 2016 sent Indian residential real estate – till then a preferred laundromat for unaccounted wealth - into an almost terminal tailspin. Even three years after DeMo, the battle is only half-won. The secondary or resale residential real estate market still accommodates black money. At least 30 percent of the total cost of resale property can still be paid in cash. While more and more buyers and sellers prefer official payment routes as a matter of principle, many still use the resale property market to launder untaxed cash,” says Anuj Puri, Chairman - ANAROCK Property Consultants.

While the trend in MMR and NCR – the cities historically notorious for black money in real estate - has been tamed considerably in primary sales, the resale property markets still see cash components. As much as 20-25 percent of the total resale property cost can still be 'adjusted' with black money.

In cities like Bengaluru, Pune and Hyderabad, the prevalence of transparent payment routes, even on the resale market, is much higher, the report said.

Unlike the primary sales market, the resale market still lacks strict regulations, making it easier for buyers and sellers to use cash components. Also, the primary sales market involves developers with a reputation to protect - a resale property transaction involves two individuals.

The pricing of resale properties also lacks transparency. In the case of direct sales by developers, there are readily-available pricing benchmarks. In the secondary sales market, a seller can inflate the price of a property based on location, added features, etc. without stating so on the books.

Another factor is the massive decline of speculative buying and selling of residential properties. Genuine buyers purchasing homes for self-use invariably use home loans to ease the financial impact and avail of various tax benefits, the report said.

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First Published on Nov 27, 2019 02:47 pm
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